Investor delayed accepting firm settlement offer
A client with about $1,000,000 in GICs and a number of real estate investments met with an advisor. His account application said that he had an investment time horizon of 15+ years and objectives of balanced capital growth. He was quite knowledgeable and worked in real estate development.
On the advice of his advisor, the client invested $500,000 in a lowto medium-risk managed investment product. Within six months, the value of the investment had declined by approximately $15,000 and the client formally complained. In his letter to the firm the client said that he was pressured to invest in the product and was told that it would provide a guaranteed return. The firm agreed to pay the client $15,000 for his losses. The client declined the firm's offer because it did not include interest that he would have earned if he had invested in a GIC. He then complained to the firm's ombudsman. The firm ombudsman wrote to confirm they would review the complaint, but told the client that he could make any changes to his investments he wanted and it would not affect the investigation.
During the investigation, the client transferred to another advisor at the firm. On more than one occasion, the new advisor called the client to inform him that the market value of his investment was greater than his original investment value. The client said he did not want to sell his investment because he wanted to know if he would still receive the $15,000 offer. Unfortunately, by the time he received the ombudsman's response confirming the original offer, the stock markets had crashed and his investment had declined by almost $200,000. The client complained to OBSI.
In reviewing the complaint, we considered that the client could have sold the investment at a small profit for at least a month. The profit he would have received combined with the firm's original offer provided a return equivalent to a GIC. Although his subsequent losses were much greater, we concluded that the client had an opportunity to limit his losses. The firm agreed to reinstate its offer of $15,000. Since we believed this fully compensated the client, we did not investigate further.
When clients realize there is a problem, they have a responsibility to take reasonable steps to limit losses. Determining reasonableness, we take into account the client's investment knowledge and experience, as well as the complexity of the decision. In this case, the decision was relatively straightforward, as the client did not wish to take any risk and could have removed his money from the risky investment. While the client's additional losses were extremely unfortunate, we did not believe it was fair for the firm to pay for his inaction.
(2009)